More than a lobby: finance in the UK

Finance
and the British state are mutually embedded to the point that it can be hard to
tell where one stops and the other starts. Here, Tamasin Cave of Spinwatch gives
us a brief tour of the tangled web that is public life in the UK.

Flickr/Dominic Alves. Some rights reserved.

Lord Sassoon, until January this year economic secretary to the Treasury
in the UK government, is a man who bestrides the worlds of government and
finance. In 2012 he delivered the inaugural summer lecture of the British
Bankers Association. He began by thanking the outgoing head of the BBA, Angela
Knight, for her services to Britain [1]: “Angela, the country owes you a debt
of gratitude”, he said, praising her for her steady, calm presence during the
Northern Rock crisis of 2007, for her masterful lobbying to defend the City in
Brussels, and for rebuilding banking’s relationship with the UK government and
with the industry’s customers.

Sassoon went on to explain how, as early as
2003, the Bank of England financial
stability team had already identified “some of the key issues that would be at
the heart of the crisis, for example, the over reliance of Northern Rock on
wholesale funding, the extent of Bradford and Bingley’s exposure to the
buy-to-let market, RBS’s increasing exposures in Germany and elsewhere”.

Offshore dynasts, old and new

He talked of how in 2005, Andrew Large, who
was deputy governor of financial stability at the Bank, was “ringing alarm
bells’, one of two people identified by Sassoon at “the top global table that
were standing out against the orthodoxy”. “Sadly we all listened but took no
action,” said Sassoon.

According to Lord Sassoon, this is a government “utterly committed
to ensuring the UK is open to business and that London continues to thrive as a
global economic centre… A government with a number of bankers in its ranks, led
by a Prime Minister who is proud to say he comes from a stock broking family”. Sassoon’s
remarks echo the sentiments of the Labour Party’s Ed Balls a few years earlier.
In 2006 Ed Balls, then the Economic Secretary to the UK Treasury, told an
audience at the BBA that “when the WorldCom accounting scandal broke in
the US, we resisted pressures from commentators for a regulatory crackdown”. He went
on to say that the UK government had a “specific and clear interest” in
safeguarding “the light touch and proportionate regulatory
regime that has made London a magnet for international business”. Of course it
was this same “light touch” regulatory regime that allowed Northern Rock,
Bradford and Bingley and RBS – finance as a whole – to engage in a frenzy of
risky business.

Lord Sassoon is only one of many former bankers to have served in the
current UK government. In the current Cabinet both David Laws, a Liberal
Democrat Minister for Schools, and Oliver Letwin, a Conservative Minister at
the Cabinet Office, worked in investment banking before they entered
Parliament. In fact the UK comes second only to Switzerland for the number of
people moving through the “revolving door” between the finance sector and officialdom
according to a report by the OECD [2]. Baron Green of Hurstpierpoint, previously Chairman of HSBC, is
currently a Minister at both the Department for Business Enterprise and Skills
and the Foreign and Commonwealth Office. In May 2013 the former Chairman of
Goldman Sachs, Richard Sharp, joined the Bank of England’s Financial Policy
Committee, the new watchdog set up to protect the public from another financial
meltdown [3]. Two months later another former Goldman Sachs banker, Mark
Carney, became the governor of the same institution. Current and former
employees of the investment bank also known as “the vampire squid” have donated
£8.8million to Britain’s political parties in the last decade. Sharp himself
donated £400,000 during that period. And this is only a fraction of what the
sector gives. In 2011, hedge funds, financiers and private equity made up over
a quarter of Conservative Party funding, with the City as a whole contributing
more than half of its donated income.

The
global accountancy firms – the so-called “Big Four”, PWC, KPMG, Deloitte and
Ernst & Young – are also deeply embedded in the British state. They earn
hundreds of millions of pounds a year from government business while loaning
their staff to government departments and political parties, where they advise
on everything from tax law to privatisation programmes.

All
four companies insist that their involvement is limited to providing “technical
insight” into proposed polices. But at the same time some actively lobby
government for changes in tax legislation. Ernst & Young’s Tax Policy
Development team, for example, says that it “works with clients to develop
proposals for changes in tax policy that can be taken to government”.

“Unlike
a traditional lobbying service,” the pitch reads, Ernst & Young’s team will
work with its clients to develop “technical policy options in a form that is
used inside Government today”. Put simply, this means it uses its knowledge of
the workings of government to lobby for clients. This, it says, means that tax
changes can be “implemented with the minimum of delay”, and makes sure that “the
concerns of policy-makers are addressed”. This gives proposed tax breaks “the
maximum chance of adoption”. In this respect, the insider status of E&Y is
clearly of benefit to its clients.

The advantages to
clients of lobbying for tax policy changes – as opposed to tax planning – are
clearly explained in Ernst & Young’s pitch: “In an era where the government
is focusing on actively identifying and countering tax avoidance, and where
there has been considerable media coverage on particular “tax avoiders”, policy
development offers a low risk alternative.” In other words, “policy development”
– lobbying for changes in the law – offers its corporate clients a less risky
way to reduce their tax bill.

Incidentally,
Ernst & Young’s lobbying team would not be covered by the government’s
proposed register of lobbyists, which is making its way through Parliament. If
it passes in its current form, the register will include only a tiny fraction –
5 per cent on some estimates – of the £2 billion UK lobbying industry [4].

Former politicians beat a well-trodden path in the other direction. Tony
Blair took a job with JP Morgan when he left Downing Street. He joins a group
of politicians-turned-financiers too numerous to name here. But some idea of
the scale of what’s happening can be grasped if we restrict ourselves to former
Ministers in the Department of Health during the New Labour years. Alan Milburn
is an advisor to Bridgepoint, a private equity firm and PWC. Norman Warner has
been an adviser to Apax Partners, another private equity firm. And Patricia
Hewitt has advised Cinven, yet another private equity group.

And then there is the current Prime Minister. As Lord
Sassoon notes, David Cameron comes from a stock broking family. This underplays
things a little. His father co-founded the Panamanian investment company
Blairmore Holdings and was the chairman of Close International Asset
Management, based in Jersey [5].
Unlike Tony Blair, the British Prime Minister from 1997 to 2007, who only began
to make extensive use of tax havens on leaving office, Cameron is part of an
offshore dynasty. Blairmore indeed.

Through the revolving door that takes politicians into lucrative
employment and financiers into government, through party donations, and through
the informal mechanisms of finance’s lavish hospitality, the political class is
integrated with the sector to the point where it can be difficult to see where
one stops and the other starts. Ambitious politicians have been eager to
associate with investment bankers and others from the sector. There’s money to
be made, of course, but also the seductive sense that they are in the room with
the people who understand how the world really works, with the winners. Billions
in taxpayers’ money seems like a small price to pay for such company. And the
pervasive secrecy and clannishness of British politics only compounds the
problem. We do not know, for example, how much money finance contributes to the
free market think tanks that enjoy such sympathetic coverage in the UK media.

Given the degree of overlap, and the shared commitment to London as a
world financial centre, the organised lobbies for finance do not have to spend
much time persuading the government to promote their interests. Instead, in the
words of the then-Chancellor and later Prime Minister Gordon Brown, they work
together to “promote the City and its financial service expertise throughout
the world”. It is hardly surprising that the few warnings that reached
Sassoon’s “global top table” went unheeded. By then the British government no
longer saw the financial sector as one lobby among others. It saw itself as a
lobbyist for finance. This was, and is, a recipe for trouble.

To find out more about the Tax Justice Network, to
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